What are cryptocurrencies?
Cryptocurrency is a type of cryptographic currency created from computer code. They operate autonomously outside of traditional banking and government systems.
Cryptocurrencies use cryptography to secure transactions and regulate the creation of additional units. Bitcoin, the original, and by far the best-known cryptocurrency, was launched in January 2009. Currently, over 1,000 cryptocurrencies are available online.
Cryptocurrencies differ significantly from traditional currencies. However, you can still buy or sell them just like any other asset. You can also trade the price movements of several cryptocurrencies through CFD trading.
The world of cryptocurrencies is full of opportunities
Cryptocurrencies fall under the banner of digital currencies, alternative currencies and virtual currencies. They were originally designed to provide an alternative means of payment for online transactions. However, cryptocurrencies have not yet gained wide acceptance by businesses and consumers, and they are currently too volatile to be suitable for payment methods. As decentralized currencies, they were developed to shed government stranglehold and influence, and the cryptocurrency economy is instead monitored by 'peer-to-peer' internet protocols. The individual units that make up a cryptocurrency correspond to strings of data that have been encoded to represent a unit.
Bitcoin is known to have been the first decentralized cryptocurrency. Like all cryptocurrencies, it works through a transactional database called a 'blockchain', functioning as a distributed public ledger. Bitcoin was created by Satoshi Nakamoto but we don't know if this is an individual or a group.
One of the characteristics that most cryptocurrencies have in common is the fact that they have been designed to gradually reduce production. Therefore, only a limited number of units of the currency will ever be in circulation. This is opposed to commodities like gold and other precious metals. For example, the number of bitcoins is expected not to exceed 21 million. Other cryptocurrencies, like ethereum for example, work slightly differently. The issue is capped at 18 million ethereum tokens per year, corresponding to 25% of the initial stock. Limiting the number of bitcoins brings scarcity, which in return gives it its value. Some even believe that the creator of bitcoin actually modeled cryptocurrency based on precious metals. Therefore, mining cryptocurrencies becomes more and more difficult over time due to the fact that the mining reward is halved from year to year until it drops to zero.
Main characteristics of cryptocurrencies
There are a few key principles that govern the use, exchange, and transactions of cryptocurrencies.
Cryptography
Cryptocurrencies use advanced cryptography in a number of ways. Cryptography was born out of the need to establish secure communications during World War II in order to convert easily decipherable information into encrypted code. Modern cryptography has come a long way since then and, within today's digital world, is based primarily on computer science and mathematical theories. It also derives from the science of communications, physics and electrical engineering.
Two of the main things related to cryptography apply to cryptocurrencies, hashing and electronic signatures:
Hashing verifies the integrity of the data, maintains the structure of the blockchain and encodes the addresses of accounts and transactions of individuals. It also generates cryptographic puzzles in order to make block mining impossible.
Electronic signatures allow an individual to prove that they have an encrypted piece of information without revealing that information. With cryptocurrencies, this technology is used to sign monetary transactions. It proves to the network that the account holder has agreed to the transaction.
Blockchain technology
A blockchain is the public ledger or list of all cryptocurrency transactions. The completed blocks, made up of the last transactions, are recorded and added to the blockchain. They are stored in chronological order as an open, permanent and verifiable register. A peer-to-peer network made up of participants in this market manages the blockchains and they follow a whole series of protocols to validate the new blocks. Each 'node' or computer connected to the network automatically downloads a copy of the blockchain. This allows everyone to track transactions without the need to maintain a centralized ledger.
Blockchain technology creates a ledger that cannot be changed without the consent of the rest of the network. The concept of blockchain is attributed to the founder of bitcoin, Satoshi Nakamoto. This concept was the inspiration for other applications based on digital currencies and money.
Block mining
Block mining is the process of attaching new transaction records as blocks to the blockchain. During this process - taking bitcoin as an example - new bitcoins are produced, thus increasing the total number in circulation. Cryptocurrency mining requires certain software that is used to solve mathematical puzzles and thus validates the legitimate transactions that make up the blocks. These blocks are added to the public ledger (blockchain) approximately every 10 minutes. While the software resolves these transactions, the miner is rewarded with a given amount of bitcoins. The more the miner's hardware can perform math problems, the greater the likelihood of validating a transaction and getting the bitcoin reward.
What cryptocurrency to invest in?
Bitcoin
Bitcoin is known to be the first and most well-known cryptocurrency. Satoshi Nakamoto, a person or group of individuals under that name, created it in 2009. Presumably, its characteristics are closer to commodities than to conventional currencies. This is reflected in the fact that it is used more today as a form of investment than a method of payment. At the end of December 2017, there were approximately 16.7 million bitcoins in circulation (there could be a total number of 21 million available). Traders can either buy bitcoins through a centralized place, or speculate on its price movements through CFDs. Learn more about how to trade bitcoin.
Ethereum
Ethereum is relatively new to the cryptocurrency world. The latter was launched in 2015 and, at the time of this writing, is currently the second most important cryptocurrency. It works similar to bitcoin, allowing people to send or receive tokens representing its value over an open network. Tokens are referred to as ether and this is what is used as a payment method on the network. However, the primary use of ethereum is to function as smart contracts rather than a form of payment. Smart contracts are scripts of code that can be deployed on the ethereum blockchain. The limit on ether works slightly differently than bitcoin. The issue is limited to 18 million ether per year, which corresponds to 25% of the initial stock. Therefore, while the absolute issue is fixed, relative inflation declines year after year.
Litecoin
Litecoin is one of the cryptocurrencies that has been cloned and produced from bitcoin. At the end of 2011, he changed the rules (fork ’) of the bitcoin registry. Charlie Lee, the creator of litecoin, created it to make it a faster version of bitcoin, with faster individual transaction times. It also increased the available number that can be mined. The total number of litecoins is 84 million compared to 21 million bitcoins.
Zcash
Created in late 2016, Zcash claims to provide additional security and privacy. It also allows confidential transactions (and usually confidential data) in a public blockchain. Users are offered the choice of secure transactions or a proof of construction called a "zk-SNARK". Like bitcoin, the total number of Zcash is 21 million. Zcash is considered an alternative cryptocurrency or an 'altcoin'.
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Acknowledgement : (adopted and translated from article below)
https://www.cmcmarkets.com/fr-fr/apprendre-a-trader-les-crypto-monnaies/que-sont-les-crypto-monnaies